Offer fire insurance-probabilistic annual risk

Reference no: EM13266613

You have the opportunity to offer fire insurance to your friends and neighbors. For every policy you take, you incur the following probabilistic annual risk:

Annual Loss Probability of Loss

$0 60%

$500 10%

$5,000 10%

$20,000 15%

$100,000 5%

If you incur a loss, you pay it at the end of the year. How much should you charge each policy holder a month, collected at the beginning of each month and held in an account earning a nominal, annual, 6%, to make an annual profit of $1,000 per policy holder?

Reference no: EM13266613

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